Snapshot of recent developments
Tax Alert - November 2017
Business Transformation receives praise at the OECD Forum on Tax Administration
Inland Revenue’s Business Transformation program has been mentioned in the OECD’s Tax Administration 2017 report released at a recent OECD Forum on Tax Administration (FTA) in Oslo, Norway. To read more see IRD a global leader in shift to digital unobtrusive tax administration by NBR or see full OECD report here.
Donee organisations – meaning of wholly or mainly applying funds to specified purposes within New Zealand
Inland Revenue has released a draft Interpretation Statement (PUB00295) on the meaning of the “wholly or mainly” test in section LD 3(2)(a) of the Income Tax Act 2007. If an organisation “wholly or mainly” applies their funds to charitable, benevolent, philanthropic or cultural purposes within New Zealand, they will be classified as a donee organisation for income tax purposes and can obtain a tax credit or deduction for the gift (dependent on the type of taxpayer making the gift).
Before this draft statement, the Commissioner considered that a bare majority of 50% or more of funds applied to charitable, benevolent, philanthropic or cultural purposes within New Zealand was sufficient to meet the “wholly or mainly” test. The draft statement proposes, with effect from the year ended 31 March 2019, that the minimum threshold be increased to “75% or more”. It will also be necessary for organisations to monitor their compliance with the threshold at least annually and the draft statement briefly outlines two monitoring methods to work out how to apply the 75% minimum threshold.
The draft interpretation statement also confirms Inland Revenue’s view that applying funds to specified purposes within New Zealand does not limit an organisation to spending funds within New Zealand.
The deadline for comment is 30 November 2017.
Six-monthly GST return filing
Inland Revenue has released a statement (SPS 17/02) setting out how the Commissioner will exercise her discretion to allow GST-registered persons to become, or remain, six-monthly return filers for GST purposes when the taxable supplies threshold ($500,000 in a 12-month period) has been breached. A person with taxable supplies greater than $500,000 in a 12-month period may apply for six-monthly filing where they:
- Make seasonal supplies – that is, 80% or more of their taxable supplies within an income year within a six-month period that ends at any day within the last month of the person’s income year; and
- have not had a six-month filing frequency under the seasonal criterion in the 24-month period before the application.
A person will not have to cease using 6-monthly filing if the breach of the taxable supplies threshold is a one-off.
Group insurance policy taken out by employer for the benefit of an employee
On 18 October 2017, Inland Revenue released a draft QWBA for public consultation (PUB00293). This item considers the income tax treatment of group insurance policies taken out by an employer for the benefit of its employees. The draft item replaces two out-of-date Public Information Bulletin items: “Staff insurance schemes” PIB No 70 (December 1972) and “Life and accident insurance policies” (PIB No 106 July 1980).
The draft item concludes that the employer will generally be entitled to a deduction for the premiums paid because in most cases the payment of a premium for a group insurance policy that is paid in connection with employment will constitute a business expense, just like salary or wages. The payment of a premium by an employer will be a fringe benefit, and any amounts paid out under the group insurance policy will not be income of the employer. Whether a payment made to employees is income or not will also depend on whether the payment is intended to compensate an insured person for lost income.
The deadline for comment is 29 November 2017.
Draft public rulings on Australian limited partnership and foreign tax credits
On 27 September 2017, Inland Revenue released several draft public rulings in relation to Australian limited partnerships for consultation, which are reissues of BR Pub 14/01 to 14/05. The rulings will apply from the beginning of the first day of the 2017-18 income year, i.e. the date of expiry of the previous rulings. We note that the draft rulings do not substantially differ from the existing rulings.
These draft rulings concern the ability of a NZ resident partner of an Australian limited partnership to claim foreign tax credits for Australian income tax and dividend withholding tax paid by an Australian limited partnership (i.e., a partnership that is treated as a company for Australian tax law purposes, but in NZ retains its partnership status and flow-through tax treatment).
The deadline for comment on this item is 8 November 2017.
Tax and Corporate Australia
The Australian Taxation Office has published Tax and Corporate Australia, which analyses the income tax compliance of large corporate groups (i.e. the top 1,400 corporates with sales over AUD250million). The ATO estimates that the tax gap (the difference between the tax payable according to law and the tax actually collected) for this taxpayer group was approximately $2.5 billion / 5.8% for the 2014-15 income year. However, the ATO notes that there is a “strong compliance culture” in the large corporate taxpayer group and acknowledges that tax affairs and transactions for large businesses are complex, and there can be reasonable differences of opinion.
IR webpage updated for GST: Zero-rating of supplies
Inland Revenue has updated its webpage on zero-rated supplies. The webpage includes a comprehensive list and examples of taxable supplies which are taxed at the rate of 0%, including: duty free goods, exported goods, certain exported services, services performed outside New Zealand, exported vessels, certain financial services, goods not in New Zealand at the time of supply or delivery to the final recipient, internet sales, sales of going concerns, land transactions, and temporary imports. Inland Revenue also clarifies that goods that were to be exported but are destroyed owing to circumstances outside the control of both the supplier and the recipient are still zero-rated.
Special determination S56: Treatment of prepayments for services using IFRS
This determination applies to prepayments received by a limited partnership from customers under customer contracts and to prepayments made by the limited partnership to subsidiaries under supporting contracts on back-to-back loans. Specifically, this determination relates to the value of the consideration for one of the customer contracts and its supporting contracts and the spreading of any interest income or expenditure under the financial arrangement rules.
Depreciation Rates for potato cool stores finalised
The Commissioner of Inland Revenue has finalised the depreciation rates to apply for potato cool stores (General Determination DEP 102). Potato cool stores are specialist buildings that control humidity and temperature so that potatoes can be stored for long periods without spoilage occurring. Potato cool stores (excluding climate control plant) have an estimated useful life of 33.3 years, and are to be depreciated at the diminishing value rate of 4.5% and the straight-line rate of 3%.